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Retirement Income Strategies for the 1%

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March 16th, 2018

It’s a good problem to have, but the nation’s wealthiest folks have a few extra challenges to address when making decisions about their withdrawal plan in retirement.

While the 1% is a loosely defined, income-determined social class, we often assume that its members have so much money that they don’t need to plan for retirement. This is typically not the case. For those with roughly $2 million+, careful planning is still necessary, whether it be for income or legacy purposes. Here are some income strategies for the affluent that may run counter to common retirement income wisdom.

Amass a Big Cash Cushion
First, start to stockpile cash in the years leading to retirement, especially in a market environment like today’s, which has featured a long upward trend. This does not mean you should liquidate investments. It means you should start spending less and saving more. If you start to save large sums of money, it will help you be prepared to deal with sequence risk. That means, you will be able to ride out a downturn in the market in your early retirement years, allowing your investments the opportunity to rebound before you have to liquidate them.

In addition, living off cash in retirement will also keep your income tax bracket a bit lower, which may make Roth IRA conversions more attractive.

Lastly, stockpiling cash will help you adjust to a lower-cost lifestyle in retirement, something even the wealthy should strive to achieve. If you’re currently earning $1 million a year and want to re-create that same amount in retirement, using a 4% withdrawal rate, you’d need a nest egg of $25 million. That’s not feasible for most folks. So, if you start saving substantial amounts in the years leading up to retirement, your spending should decrease accordingly. That’s never a bad move as you enter your retirement years.